Minford calls for 15pc flat tax

Britain should adopt a flat tax system and dramatically overhaul its current convoluted fiscal system, a leading economist has argued.

Professor Patrick Minford, one of the so-called Six Wise Men who advised Kenneth Clarke as Chancellor, said income tax could be immediately cut to a flat 22pc, and possibly eventually to 15pc.

His radical suggestions will pile pressure on the Conservatives to consider proposing tax cuts at the next election. Although shadow chancellor George Osborne said he was considering a flat tax - whereby all workers pay the same rate - insiders now expect him to drop the plans.

Prof Minford said the cuts would help boost the economy by so much that the Government would make back almost three times the amount it would lose by slashing taxes.

His proposals involved scrapping VAT, capital gains and inheritance taxes and replacing them with a consumption tax, which would levy a charge on both sales of goods and living costs. He said if this charge was 15pc, it could be spread across all areas of spending.

Prof Minford said the existing system had become overly inefficient.

"Complexity has proliferated, with a stress on special incentives and special penalties; this has created a complex patchwork of high marginal tax rates," he said. He added that at present the effective marginal tax rate for many households was 70pc, and as a result there is much less incentive for an employee to work extra hours. He said this problem was particularly severe for those who claim tax credits.

The main challenge to a new tax system would be a political one, Prof Minford said. "In politics there is a well-respected principle: for any reform to succeed, there should be as few losers as possible. The overall cut in taxation proposed here implies an absence of any major class of losers."